Ways and Means finances of the apex bank pose greater liquidity and inflation risk to the economy, the think tank said.
The Centre for the Promotion of Private Enterprise (CPPE) has said that Nigeria’s current tax regime is stifling investment and economic growth.
Muda Yusuf, director of the organisation, made this known in a statement detailing CPPE’s economic and business environment review for 2022 and agenda for policy makers for 2023.
The policy think tank said that an economy that desires job creation, economic inclusion, investment growth and poverty reduction, should have an accommodating tax regime for investors.
The CPPE said: “Corporate tax in Nigeria is 30%. But effective corporate tax is much more than that. There is tertiary education tax of 2.5% of profit; NITDA Levy of 1% of profit; NASENI Levy of 0.25% of profit; Police Trust Fund Levy of 0.005% of profit. This brings effective corporate tax to about 34%.
“This rate is one of the highest in the world. Average corporate tax rate for Africa is 27.6%; Asian average is 19.52%; European Union is 19.74% and global average is 23.37%. Meanwhile new taxes are still being proposed by the National Assembly. These include Tertiary Health Tax of 1% of profit; and NYSC levy of 1% of profit. There are numerous other taxes imposed on businesses by the states and local governments.”
The multitude of taxes, the statement said, is crippling investment in the Nigerian economy and there is need for an urgent review.
“The current tax regime is in conflict with the National Tax Policy which prescribes that there should be less emphasis on direct taxation in order to incentivise investment. Meanwhile, investors are grappling with numerous macroeconomic, structural and regulatory headwinds,” it noted.
“They incur huge expenditure on stuffs which the government should normally provide – electricity, security, water, waste management, human capital etc. These are implicit taxes, as it were. There are also numerous state and local government taxes which businesses have to pay.”
Inflation
The statement noted that as at January, headline inflation was 15.60% and rose to a peak of 21.47% in November 2022. Meanwhile, food inflation consistently outpaced headline inflation and core inflation during the year.
“For the basket of goods and services consumed by the average Nigerian, costs have accelerated by between 50% to 100% in 2022,” it said.
“The inflationary situation was the worst in recent history and the impact on citizens and the SMEs was very devastating. The world bank reported that 5 million Nigerians have been pushed into poverty in 2022 amid a slump of purchasing power by 35% driven largely by surging inflation.”
In order to tackle inflation, the government must address the key drivers of inflation and boost productivity in the economy to drive output growth, stem the depreciation of the naira exchange rate, address the illiquidity in the foreign exchange market, minimise the monetisation of fiscal deficit.
The CPPE noted that the CBN financing of deficit should be strictly limited to statutory threshold spelt out in the CBN Act while government devise creative ways of addressing insecurity in order to pave way for farmers to return to their farms.
GDP Growth
Commenting on GDP growth, the statement noted that Nigeria’ GDP is valued at over N200 trillion [in nominal terms] as at third quarter of 2022.
It added that the GDP grew by 3.11% in the first quarter; 3.54% in the second quarter; and decelerated to 2.25% in the third quarter.
“Given the enormity of the macroeconomic headwinds and the numerous fiscal and monetary policy shocks, the Nigerian economy could be adjudged to have demonstrated remarkable resilience in 2022,” the statement said.
“The fragile growth performance was a reflection of the diverse headwinds bedevilling the Nigerian economy. These include: the macroeconomic instability, shrinking fiscal space, soaring public debt, heightening inflationary pressures, currency depreciation, foreign exchange illiquidity, surging energy cost, weakening purchasing power, legacy structural constraints, lingering insecurity, and crippling trade facilitation issues.”
With regard to management of the foreign exchange crisis, the statement said that it was a major predicament that investors grappled with in 2022. The dimensions of this dilemma, it said, included sharp currency depreciation; forex market illiquidity, especially at the official window; volatility of the exchange rate which created considerable uncertainty and unpredictability for investors; and transparency issues in the forex allocation ecosystem.
CRR
CPPE said that the current Cash Reserve Ratio [CRR] of 32.5% and Monetary Policy Rate [MPR] of 16.5% imposed on the Nigerian banks are among the highest globally. High CRR in particular has become a key impediment to financial intermediation by the banks, it said, adding that effective CRR is as high as 50% or more for some banks.
It said: “The high CRR has made it difficult for the banks to play their primary role of financial intermediation. Their profitability is also adversely impacted because of limited room for credit creation activities.
“Ways and Means finances of the apex bank pose greater liquidity and inflation risk to the economy than bank deposits.”
The centre called for a reduction in CRR so that the banks can be better placed to play their primary role of financial intermediation in the economy.
Economic Reforms Ahead of 2023
To unlock growth and investment in 2023, the CPPE said the government must undertake some urgent reforms, including the enactment of the Petroleum Industry Act [PIA], a major step towards the reform of the oil gas sector.
“There is a need to also consolidate the power sector reform,” it said.
“An enabling environment must be created to sustain current private sector investment in the sector and attract new private capital to the electricity sector. Urgent reforms are vital with respect to electricity tariff, metering and deepening of energy mix. We need robust incentives [fiscal and monetary] to boost private investment in renewable energy.”
The statement also added that there is need to reform the budget and appropriation processes to prioritise infrastructure financing and human capital development as this would boost productivity and competitiveness of the economy.
“Adoption of these reform initiatives would guarantee progression towards fiscal consolidation, reduction in fiscal deficit, diminishing need for borrowing and abating debt service burden,” it said.
The think tank noted that maritime sector is a very crucial sector of the Nigerian economy, adding that it is a sector where reform imperatives have become very urgent to facilitate growth and development.
The centre noted that the political environment has a major impact on economic and business performance, adding that the quality of the political transition process, especially the credibility of the 2023 elections, would be of contextual significance for the economy in 2023.
“The elections must be free, fair, transparent and credible. And it must be seen to be so. This underlines the need for the independence, neutrality and credibility of the key institutions involved in the election management process – INEC, Judiciary and the Security agencies.
“The quality of the democratic transition and choices would significantly impact economic outcomes in 2023,” it added.
Source: premiumtimesng
